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March 21, 2013

Horsemeat Burgers? Scandal Exposes Europe's Supply Chain Weakness

In mid-January, after two months of investigation, the Food Safety Authority of Ireland made the announcement that consumers who thought they were buying beef in the form of frozen hamburgers and prepared meals were actually buying horsemeat, or pork. The news was not well received, particularly since the supermarkets in Ireland that stocked the products had ties to supermarkets in England.

The scandal spread from Irish and English Tesco supermarkets to their suppliers—Silvercrest Foods and Liffey Meats in Ireland, and Yorkshire supplier Dalepak—and far beyond the borders of the U.K. Silvercrest and Dalepak are subsidiaries of ABP Food Group, one of the largest European beef processors. ABP, which gets its meat from a variety of sources, claimed the adulteration occurred with supplies from Spain and the Netherlands, then later pointed to Poland as the source.

However, Poland’s government has found no problems with the labeling in its horse slaughterhouses, and the search continued even as adulterated products were found in more retail outlets, including restaurants, and even schools. In the U.K., Taco Bell restaurants, outlets of hotel and restaurant chain Whitbreads PLC, and even schools found horse DNA in various types of prepared meals. Ikea’s Swedish meatballs and lasagna were found to be part horsemeat, and supermarkets from France to Switzerland found themselves caught up in the contamination as well, with some DNA tests revealing between 80%–100% horsemeat instead of beef. Food giant Nestlé has also pulled some of its products from the shelves of Italian and Spanish markets and French caterers, and the contamination has reached as far as Hong Kong.

Aside from the personal scruples of whether one wants to consume horsemeat in the guise of beef—after all, France, Belgium, and some other European countries do eat horses on a regular, if limited, basis—are fraud, labeling, contamination, and health issues that affect more than just food processors, wholesalers, slaughterhouses, and retail outlets; not just businesses but also state and international agencies are on the line.

After the mad cow scare in the 1990s, Europe banned British beef and set in place stiff controls designed to account for the country of origin of animals slaughtered for fresh meat. However, when that meat is further processed, most controls other than tests for food safety slip away, leaving plenty of opportunities throughout the vast and convoluted supply chain to insert ringers—not just horse and pig, but, as additional DNA tests have determined, even donkey. Horsemeat has also surfaced in fresh meat, however, so even there safeguards have not been foolproof.

The source for the majority of horsemeat found in the wake of testing has been variously reported as Poland, Romania, and several other countries. Some of the horsemeat did come from Romania, and was sent, via a Cyprus-registered trader, to another trader in the Netherlands named Draap Trading (which is Dutch for “horse” spelled backwards). Draap sold the Romanian horsemeat to French meat wholesaler Spanghero, which then sold it to Comigel, a French frozen food processor. From Comigel the meat went to many countries under the label of Swedish-based Findus, in lasagna and other products.

Director Jan Fasen of Draap was already convicted of selling horsemeat as beef to France in January of 2012, and during his trial it emerged that he had sold Mexican and South American horsemeat to France as far back as 2007 that was labeled as Dutch and German beef. Fasen has said that the meat he sold to Spanghero was clearly labeled as horsemeat, and that Spaghero and French manufacturers were aware of what they were buying.

As Europol prepares to investigate how deep the problem goes, Britain’s environment secretary Owen Paterson said in news reports, “I’m concerned that this is an international criminal conspiracy here and we’ve really got to get to the bottom of it.” Outraged British newspapers have taken up the cause, reporting the involvement of international crime rings in the horsemeat trade who make millions from substituting horse for beef (the former is far cheaper) and intimidate officials and vets into approving as beef cheaper meats, from horsemeat to pork.

The outcry is growing throughout Europe for labels declaring country of origin on all processed meats; up till now, only fresh meat was required to be so labeled. In addition, individual countries in Europe are saying that they will use only products that come from their own countries, and importers and exporters are not pleased. Consumers, meanwhile, have cut their consumption of meat, turned to small local markets, or altogether abandoned processed meats such as frozen hamburger for larger cuts that are harder to adulterate. This has ramifications for food producers all over Europe and even farther afield, particularly since management consultancy KPMG has cited 450 points at which supply chain integrity can be compromised.

There are several valid reasons for consumers to fear unlabeled—and untested—products. While health concerns are among them, other issues loom large as well. Among threats to health is the presence of trace amounts of horse DNA in a meat product. While that does not indicate mislabeling of meat, is more likely to be a sign that food processing equipment has not adequately been cleaned—a source of worry in itself.

Drugs are another worry. Products with high concentrations of horsemeat could contain phenylbutazone, or “bute,” a veterinary drug used on horses that can be harmful to humans. While horses destined for slaughter are supposed to be identified as bute-free, falsified papers have become all too common in the global supply chain and French authorities confirmed in late February that horsemeat contaminated with bute had entered the food chain in that country. The horses had been exported from Britain to France.

Then there are broader issues of food allergies and sensitivities, not to mention religious issues surrounding the consumption of pork.

If food supply chains are in question all over Europe, with the horsemeat scandal still unfolding, there are bright spots among the dark for investors: local food producers, who sell locally and whose wares are not in question; producers of vegetarian alternatives, whose sales are skyrocketing; and testing services, which determine exactly what is in food so that companies can confidently state that their goods are free of contamination.

Sales of frozen processed meats may be plummeting in Europe, but veggie alternative companies such as Quorn and VeggieDay have seen substantial increases in their own sales, resulting in accelerated production schedules. And increased demand for testing has reached as far as U.S. shores, with the trend likely to continue for some time.